Sept. 3 (Bloomberg) -- Bank of Canada Governor Stephen
Poloz extended the country’s interest-rate pause to four years
today and remained neutral on his next move, citing slack in the
economy that will keep inflation in check.

Policy makers held the benchmark rate on overnight loans
between commercial banks at 1 percent and said the recent jump
in exports must be sustained before it triggers the business
investment needed to bring the economy to full capacity over the
next two years. The decision from Ottawa was expected by all 18
economists in a Bloomberg News survey.

The bank “made it abundantly clear that it saw no prospect
for a change any time soon,” Avery Shenfeld, chief economist at
CIBC World Markets in Toronto, wrote in a research note. “The
key message is that the next move in rates could still be up or
down, largely because it is seen as distant enough to be
uncertain in either timing or direction.”

The decision extends Canada’s longest rate pause since the
1950s and economists predict Poloz won’t tighten policy before
next year as the recovery builds. The bank’s one-page statement
contained multiple references to the economy advancing as
anticipated, and said the recent quickening of inflation past
the 2 percent target was due to temporary factors.

“The Bank remains neutral with respect to the next change
to the policy rate: its timing and direction will depend on how
new information influences the outlook and assessment of
risks,” policy makers led by Governor Poloz, 58, said from
Ottawa today.

Stronger Dollar

Canada’s dollar strengthened further after the decision,
appreciating 0.5 percent to C$1.0877 per U.S. dollar at 11:42
a.m. in Toronto. Two year-government bond yields were little
changed at 1.13 percent.

The nation’s main equities gauge, the Standard & Poor’s/TSX
Composite Index, rose 15.82 points, or 0.1 percent, to 15,634.90
in Toronto after climbing to a record 15,685.13.

Canada’s inflation rate slowed to 2.1 percent in July from
2.4 percent in June, after accelerating from 0.7 percent in
October. The rise in the inflation rate was caused by a
temporary increase in energy prices and the effect of a weaker
currency, and not “any change in domestic economic
fundamentals,” the bank said today.

Exports in the second quarter were supported by stronger
U.S. demand and the past depreciation of the Canadian dollar,
the Bank of Canada said today. Shipments abroad jumped at an
annualized 17.8 percent pace between April and June, leading the
3.1 percent gain in gross domestic product.

“While an increasing number of export sectors appear to be
turning the corner toward recovery, this pickup will need to be
sustained before it will translate into higher business
investment and hiring,” the central bank said today.

Subdued Investment

Canada’s dollar has weakened about 6 percent against the
U.S. dollar since Poloz replaced Mark Carney in June of last
year. Business investment has remained subdued even amid signs
of stronger growth in the U.S. economy, where the expansion
reached a 4.2 percent rate in the second quarter.

Poloz has repeatedly said that the economy needs a rotation
toward exports and investment, and away from debt-fueled
household consumption, to reach a full and sustainable recovery.

“The Bank of Canada is more than happy to wait a little
bit longer for that rotation in demand,” Michael Gregory,
deputy chief economist at BMO Capital Markets, said by telephone
from Toronto. “I think it’s going to take a year for it to
really materialize.”

The housing market has advanced faster than policy makers
anticipated, the central bank said today, adding that risks
remain from the associated buildup of consumer debt. It dropped
a reference from its last statement that household debts were
evolving constructively.

Policy Zone

The risks to the bank’s inflation projection remain
“within the zone for which the current stance of monetary
policy is appropriate,” the Bank of Canada said today.

On the global economy, the central bank also dropped
language about “serial disappointment” with growth, saying
that “a solid recovery seems to be back on track” in the U.S.
while “the recovery in Europe appears to be faltering as the
situation in Ukraine weighs on confidence.”

Canada’s policy rate remains the highest in Group of Seven
nations even after the four-year pause, with former Governor
Carney raising it three times to 1 percent from the record low
0.25 percent set during the global financial crisis. Poloz
dropped a bias to raise rates that existed as Carney left.

“It’s not so much that it’s been a Poloz stamp on the
bank,” Leslie Preston, an economist at Toronto-Dominion Bank in
Toronto, said in a telephone interview. The world economy
“shifted in a dovish direction,” she said.